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AT&T has been the proud owner of HBO for less than a month, and it is already considering an overhaul that would see HBO produce more video that can compete for the attention of smartphone users. AT&T wants to boost revenue both in advertising and subscriptions, even if that means upending HBO's longtime strategy of producing a relatively small number of high-quality shows.

John Stankey, an AT&T executive who is now CEO of the company's WarnerMedia division, formed after last month's acquisition of Time Warner Inc., described his vision in an hourlong "town hall meeting" with 150 employees. Audio of the meeting was obtained by The New York Times.

Further Reading

"It's going to be a tough year," Stankey said, according to the Times article. "It's going to be a lot of work to alter and change direction a little bit."

The talk, held at HBO headquarters in New York City, was hosted by HBO CEO Richard Plepler. Both Stankey and Plepler acknowledged that producing more shows could lead to a drop in quality, but they said they hope to produce more without sacrificing HBO's standard of excellence. Stankey said that HBO needs to attract more subscribers and convince subscribers to spend more time watching HBO, the Times report said. That means HBO must produce more content, "transforming itself from a boutique operation, with a focus on its signature Sunday night lineup, into something bigger and broader," the Times wrote in a paraphrase of Stankey's remarks.

HBO must compete with smartphones for people's attention, Stankey said in this exchange with Plepler:

"We need hours a day," Mr. Stankey said, referring to the time viewers spend watching HBO programs. "It's not hours a week, and it's not hours a month. We need hours a day. You are competing with devices that sit in people's hands that capture their attention every 15 minutes."

Continuing the theme, he added: "I want more hours of engagement. Why are more hours of engagement important? Because you get more data and information about a customer that then allows you to do things like monetize through alternate models of advertising as well as subscriptions, which I think is very important to play in tomorrow's world."

AT&T wants more investment, more profit

HBO was already thinking about adapting HBO content for mobile devices more than a year before the merger was approved and finalized.

"Think about things like Game of Thrones," AT&T CEO Randall Stephenson said at a telecom conference in May 2017. "In a mobile environment, a 60-minute episode might not be the best experience. Maybe you want a 20-minute episode." Instead of showing full-length episodes on all devices, it might be best to "curate the content uniquely for a mobile environment."

Further Reading

In the more recent post-merger meeting described by the Times, Stankey said that AT&T plans "stepped-up investment" for HBO, a notion that Plepler approved of. That led to this exchange:

"Also," Mr. Stankey said, "we've got to make money at the end of the day, right?"

"We do that," Mr. Plepler responded, to scattered applause.

"Yes, you do," Mr. Stankey said. "Just not enough."

"Oh, now, now, be careful," Mr. Plepler said.

HBO has made nearly $6 billion in profit over the past three years, while devoting more than $2 billion a year to programming, the article said.

HBO has 40 million subscribers in the US and 142 million worldwide, but Stankey said that AT&T intends to make HBO "a much more common product."

“More is not better”

Plepler said that HBO's current strategy "is not going to be sustainable going forward."

"I've said, 'More is not better, only better is better,' because that was the hand we had," Plepler said. "I've switched that, now that you're here, to: 'More isn't better, only better is better—but we need a lot more to be even better.'"

How will AT&T produce more shows without reducing quality? Stankey said that AT&T and HBO will have to "figure [that] out."

"You've earned the dynamic amongst your customer base that when you put a new piece of content out there, people will try it, just because they trust you're going to be putting something in front of them that they might like," Stankey said. "We now need to figure out how to expand the aperture of it without losing the quality."

Stankey reiterated that the first year under AT&T's ownership could be tough for HBO employees. "I suspect if we're in a situation where we're going to be investing heavier, that means that there's going to be more work for all of you to do—and you're going to be working a little bit harder," he said.

The first year under AT&T ownership is a time that HBO employees will "be very fond of" when they look back on it, Stankey said. But, he added, "it's not going to feel great while you're in the middle of it."

Promoted Comments

HBO is profitable and makes quality content. It's a damning indictment of big business culture that this isn't enough. You must have continual growth at all costs, even if it means churning out shittier low quality products.

443 Reader Comments

Because you get more data and information about a customer that then allows you to do things like monetize through alternate models of advertising as well as subscriptions, which I think is very important to play in tomorrow's world.

If there is any business model that at least has the potential to provide a sustainable foundation for the creation of quality content, it's the subscription model. And that is one model that shouldn't require the monetization of every scrap of our attention, and the destruction of our last shred of personal privacy.

I can't be the only "consumer" out there who doesn't want to run headlong into "tomorrow's world" as detailed here. And if I'm going to pay for a service, I'd like to be treated with some sense of dignity and respect as a customer.

Are you f-ing kidding me? So I guess we get more Ballers and less Sopranos? Thanks, AT&T.

Not even so much as a 'go f yourself' from AT&T! I think HBO customers might still be just crazy enough to take an eye out. Remember AT&T, the customers put you in action. AT&T - you have a bad memory. We will not be shaken down! We will step up!

HBO is profitable and makes quality content. It's a damning indictment of big business culture that this isn't enough. You must have continual growth at all costs, even if it means churning out shittier low quality products.

HBO is profitable and makes quality content. It's a damning indictment of big business culture that this isn't enough. You must have continual growth at all costs, even if it means churning out shittier low quality products.

Making $5 billion profit last year? Not good enough, it needs to be $8 billion. This mentality is just horrific. Apple got to their super profits not by aiming for it, but by creating wonderful products. The revenue followed naturally.

Well I guess that's one way to compete against the other pay channels that are starting to do more original programming. They didn't have a lot but if HBO goes to hell I'd imagine the other channels would be more than willing to take in that content and increase their subscription numbers.

Even though HBO has less content that interests me than other streaming services I subscribe to I include it because of the quality of the content it does have. If the quality of HBO's content diminishes I'm out.

This is just my opinion but I'm not interested in watching GOT or West World on any of my mobile devices either.

I have no confidence in AT&T's ability to improve customer satisfaction with HBO.

HBO, holy cow, I figured they made money, I had no idea they made that much money!

So, yea, lets take a gourmet steak house and then expect it to crank out filet mignon like McDonald's does Big Macs.....cause that happens in the real world.

I am trying to figure out this new model. More stuff, crappier to watch so I will want to watch it on my cell phone rather than paying HBO for the beautiful stuff that comes off BluRay on my big (albeit antique) 50 inch panel. Why the heck do I want to watch say Westworld on my phone?

HBO is profitable and makes quality content. It's a damning indictment of big business culture that this isn't enough. You must have continual growth at all costs, even if it means churning out shittier low quality products.

The second episode of Dark Matter (S1) is pretty much where we're all headed. Thanks capitalism!

why would ATT buy a huge media creation company and then take away its main competitive advantage, which is quality. i know Netfix and Prime are making some good shows but the highest quality HBO shows are still the best by far.

You know, I think, as a species, it might behoove us to spend less time in front of our screens, and not more as these digital opium pushers are wanting. Now that they have the ability to push content and advertising to a small portable device that goes with us, not just a large stationary device at home, the takeover will soon come to fruition.

Using KPIs (key performance indicators) such as engagement as a quantitative proxy can lead to dangerous outcomes, particularly when engagement is driven (in this particular industry, and I'm no expert) by likely other qualitative aspects.

The idea that more content (e.g. more hours of programming) driving longer retention (i.e. engagement) is only true insofar as the content is the same high quality that HBO has been producing. The moment that becomes untrue is the moment you fail.

"I've said, 'More is not better, only better is better,' because that was the hand we had," Plepler said. "I've switched that, now that you're here, to: 'More isn't better, only better is better—but we need a lot more to be even better.'"

Sooo, ummm, more is not better until a lot more is better?

I'm confused.

He's saying in order to produce quality content, you need to be production content at all. That's what he means by "needing more to do better." It's some roundabout mental gymnastics that mediocre idiots in corporate America think is clever and witty. In reality he's saying nothing that everyone else didn't already think about.

Well, ATTs take seems to be really cynical and greedy. 'HBO makes SOME money, but not ALL the money, and that's unacceptable'.

Despite that I'm not unsure they're wrong that HBO's model might not be wholly sustainable in the long term. They just aren't the shining beacon of premium television they used to be. They make great television, for, sure but so do a ton more outlets. Netflix, Amazon, AMC, FX, Showtime, Starz, to name a few: the field is getting crowded in the 'premium television' space. And some outlets like AMC and FX are often outdoing HBO at their own game without being gated behind a 'premium subscription' either.

Ultimately, for the financial markets, there is always more profit to be made. And if your company isn't making more than last year, heck, last quarter, investors are heading for the exits in search of better prospects, because they're not rich enough already (witness the recent, stupidly unnecessary tax "reform" law in the U.S.).